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[admin]

This is a brief report on what the data for the housing market in Massachusetts looks like in real terms. Market data is typically reported in nominal terms which can be misleading because it combines changes in housing values with changes in the value of the dollar. Correcting for inflation removes changes in the dollar as a factor and gives a more accurate picture of how housing values have changed. This report is based on the published data of the Massachusetts Association of Realtors, though it should be noted that the S&P/Case-Shiller Index is a superior data source.

The Massachusetts Association of Realtors released their data for July 2010 on Tuesday, August 24th. While the raw prices were provided in nominal terms, for this report they have been adjusted for inflation using the CPI Northeast Urban numbers available at http://www.bls.gov/cpi/ Adjusting for inflation produced the data represented by the graphs below. Prices for January 2003 and earlier have been estimated by applying the earliest reported median from The MAR, February 2003, against the S&P/Case-Shiller Index for the Boston area. Suggestions for improving this estimate are welcome.

Full Price History



Change in Median Price From One Year Earlier, February 2004 - July 2010

Seasonal variations are removed by comparing prices from the same month in the prior year.



Some observations:

• The real increase from July 2009 to July 2010 was 5.71%.
  
• This was the eighth real year over year increase since August 2005, with all such increases occurring consecutively and after the most recent renewal and expansion of the home buyer tax credit.
  
• Real prices are still lower than the same month in every year in the time period covered by The MAR, with the exception of 2008 and 2009.
  
• This is the first time that the median has been above the real median for the same month in 2008 since falling below it. The difference was slight, however.
  
• Prices are now 21.45% below the peak set in June 2005. This is the result of a 10.90% decline in nominal housing prices and a 11.84% decline in the purchasing power of the dollar.
  
• The cumulative price decline from the beginning (Feb 2003) is 2.52%, which is an annualized decline of 0.34%.
  

Of note in this month's Massachusetts Association of Realtors report, sales volume for single family homes plunged 28% from one year earlier. No doubt this had much to do with the original closing deadline for the most recent home buyer tax credit expansion. While the closing deadline has since been extended to the end of September, it had originally been the end of June, and that extension came late enough to have already stolen sales from future months which are now covered by the extension. On the other hand, the credit will likely also add some sales to what otherwise would have occurred through the end of September as The MAR reported that 47% of members reported that they had at least one client who benefited from the extension, and 18% had at least three clients who benefited. Consequently, the tax credit will probably be distorting the volume data in both directions for the next several months, though it would seem from the precipitous drop that the net effect is downward.

Similarly, price is still being distorted by the credit. It is pushed up by the stragglers taking advantage of the credit, but it is also pushed down by the lower demand resulting from the void left by the time shifted sales. More importantly, the volume was so dramatically lower this month that the median price is probably not a particularly reliable gage at present. The increase in the median could very well be due to fewer low-end homes being sold even while the price on high-end homes stays flat or even declines.

The S&P/Case-Shiller Index for Boston is likely superior to the data above as it corrects for many flaws that are inherent when using only the median price. The S&P/Case-Shiller Index also has the advantage that futures contracts can be traded against it, thereby offering an unbiased insight into where housing prices are expected to be in the future. It also has more extensive historical data available. The MAR data was used for this report mainly out of inertia and might be replaced with the S&P/Case-Shiller Index in future reports.

As usual, please do try this at home. Double checking of the math used to construct the above graphs and analysis is strongly encouraged in order to help ferret out any errors. The data was derived from the following sources:

• http://www.bls.gov/cpi/
  
• http://www.marealtor.com/content/housing_data.htm
  
• http://www.standardandpoors.com/ ...truncated...
  

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The latest version of this report can be found at http://www.bostonbubble.com/latest.php?id=ma_inflation

- admin

[mpr]

Can the CS data be skewed by a change in the composition by price range
of houses sold ? I thought it tracked serial sales of the same house,
and so this shouldn't effect it as much.

[admin]

[john p]

This is a good question, it's got me thinking....

Let's say that Mr. Smith bought his house in 1982 and sold in 2010, that would be the "matched pair" that Case Shiller would plug into their Index.

I think if I had the time and the tools, I would try to break down current sales and see what years they matched back to. If you saw a predominance of babyboomers that bought say in the late 1970's you could get a sense as to how those transactions behaved versus say a rash of home sales due to defaults because the matched pair was a foreclosure.

http://en.wikipedia.org/wiki/Couple_(mechanics)

In mechanics, they have these things called "couples" which are similar to the "matched pair" because they are similar value (minus fatigue) and the delta is the measure of price appreciation. You can read the section regarding torque which is almost like the acceleration and velocity, which is what I see as the measure of Case Shiller.

This is how I see the distortions in the velocity:

http://www.youtube.com/watch?v=qv-xKabxtGE

[balor123]

Tools are a piece of cake. Data is tough. If we had the data, then we could come up with other interesting graphs like:

1. Estimated value pairs
2. Asking price pairs
3. Pairs by time since purchase
4. Pairs by time since first purchase
5. Pairs by homeowner age
6. Pairs by income or by price segment

[john p]

http://en.wikipedia.org/wiki/Couple_(mechanics)

The link was messed up...